Good analysis of the fundamentals.
If what you say is true, that the fundamentals of bitcoin are as a store of value, then it faces the same risks as gold backed currency and banking in general. I'm not sure what might set it off, but a run on bitcoin is a very real threat.
The emergence of a competing and superior currency or currencies could be the catalyst for something that. I would keep my eyes peeled.
Topic: Is this a bubble? If not, what are the fundamentals? (Read 1324 times)
You mean like RSS feeds Killed USENET? or How USENET killed BBS?
This text has been posted first on https://plus.google.com/102072273880684402148/posts/JRsC98Y3Ctv
Given the quick rise of bitcoin (currently priced at $93 each), it may appear to be a bubble.
A bubble happens when a lot of people, excited by the quick rise, buy with the hope to sell at a better price later. People don't really needs what they are buying. There's no fundamentals that justify a high price for the product. They buy because the price increase and they cause the increase themselves.
Bitcoin proponents tend to say that there's still not a lot of business done with bitcoin (which is true). Most of business accept bitcoin as a publicity stunt, not because they believe that there's a huge market. As such, bitcoin has a relatively low value.
And the fundamentals have not changed since the last crash to 2/3$, meaning that it is mostly a speculative bubble.
But I disagree.
Firstly, people now use bitcoin not only to trade but also to store value. As a store of value, fiat money is the worst possible solution. All the bailouts and the crisis showed us that you can't trust a bank anymore. Bitcoin offers a completely unregulated and very liquid store for money. Bitcoin is then useful not only for trade but also as a saving. Those are not speculators. If you invest in bitcoins to store money (and sell bitcoins as you need money and not selling them all when you made enough profit), you are not a speculator. This means that Bitcoin is already useful. People buy it because they need it, not because of pure speculation.
As for the fundamental, +Rick Falkvinge explained several times that if Bitcoin captures only 1% of the internet trades, each bitcoin should be valued around 10,000-100,000$.
This fundamental is still there and is stronger than ever for two reasons:
1. Despite the huge bitcoin crash in 2011, bitcoin value remained between $3 and $10 for nearly two years. It means that even when there's no hype, no interest, Bitcoin remains a quite secure store of value.
2. With its increasing value, Bitcoin is more than ever a valuable target for hackers. The fact that nobody has been able to trick the system so far and to counterfeit bitcoins is a good indicator of the technical strenght. Bitcoin even has a glitch, a few weeks ago, because of a software bug in a new release: it barely affected the price because the Bitcoin community had an appropriate response. This builds trust. Something that fiat money is missing.
But what makes Bitcoin different and is not taken into account by the "stock exchange experts" is that people are only discovering Bitcoin. MtGox has a huge queue of people wanting to send money and it takes weeks to have your account validated. In that regard, Bitcoin is exactly the opposite of a Ponzi scheme: it's hard to enter and easy to leave.
But Bitcoin is not flawless. The biggest flaw so far is usability. Bitcoin is hard to use. It is extremely easy to be scammed or to lose all your bitcoins. It's completely impractical to use Bitcoin for day to day transactions (is the bitcoin address valid? How to add a comment?) and, in its current form, Bitcoin has no chance to become mainstream.
It is a given that an electronic money like bitcoin will become mainstream in a not so distant future. I foresee three possible scenarios :
1. Bitcoin becomes the backend of an easier system and most of the people don't see bitcoins and use them without knowing it. Nevertheless, bitcoins are very valuable. That's what happened with Linux where most people using Linux are, in fact, using a layer above it (Android). That's probably where Ripple may become useful. [1]
2. Bitcoin itself becomes easiers and some services above make it even more easy. That's what happened with Git and Github. Git itself became easier and Github made it usable by nearly anyone.
3. A new solution appears that completely replace Bitcoin. Like social networks are killing RSS feeds. Bitcoin would become like Napster: an historical forerunner without any remaining value.
If you believe that 1. or 2. are the most probable future, hold your bitcoins. Don't be scared because speculators are moving the price. Just hold and sell your bitcoins when you need money.
But don't forget that 3. is also a possible scenario. So don't invest into bitcoin what you could afford to lose entirely.
[1] http://ploum.net/post/ripple-making-bitcoin-easier-or-obsolete
Given the quick rise of bitcoin (currently priced at $93 each), it may appear to be a bubble.
A bubble happens when a lot of people, excited by the quick rise, buy with the hope to sell at a better price later. People don't really needs what they are buying. There's no fundamentals that justify a high price for the product. They buy because the price increase and they cause the increase themselves.
Bitcoin proponents tend to say that there's still not a lot of business done with bitcoin (which is true). Most of business accept bitcoin as a publicity stunt, not because they believe that there's a huge market. As such, bitcoin has a relatively low value.
And the fundamentals have not changed since the last crash to 2/3$, meaning that it is mostly a speculative bubble.
But I disagree.
Firstly, people now use bitcoin not only to trade but also to store value. As a store of value, fiat money is the worst possible solution. All the bailouts and the crisis showed us that you can't trust a bank anymore. Bitcoin offers a completely unregulated and very liquid store for money. Bitcoin is then useful not only for trade but also as a saving. Those are not speculators. If you invest in bitcoins to store money (and sell bitcoins as you need money and not selling them all when you made enough profit), you are not a speculator. This means that Bitcoin is already useful. People buy it because they need it, not because of pure speculation.
As for the fundamental, +Rick Falkvinge explained several times that if Bitcoin captures only 1% of the internet trades, each bitcoin should be valued around 10,000-100,000$.
This fundamental is still there and is stronger than ever for two reasons:
1. Despite the huge bitcoin crash in 2011, bitcoin value remained between $3 and $10 for nearly two years. It means that even when there's no hype, no interest, Bitcoin remains a quite secure store of value.
2. With its increasing value, Bitcoin is more than ever a valuable target for hackers. The fact that nobody has been able to trick the system so far and to counterfeit bitcoins is a good indicator of the technical strenght. Bitcoin even has a glitch, a few weeks ago, because of a software bug in a new release: it barely affected the price because the Bitcoin community had an appropriate response. This builds trust. Something that fiat money is missing.
But what makes Bitcoin different and is not taken into account by the "stock exchange experts" is that people are only discovering Bitcoin. MtGox has a huge queue of people wanting to send money and it takes weeks to have your account validated. In that regard, Bitcoin is exactly the opposite of a Ponzi scheme: it's hard to enter and easy to leave.
But Bitcoin is not flawless. The biggest flaw so far is usability. Bitcoin is hard to use. It is extremely easy to be scammed or to lose all your bitcoins. It's completely impractical to use Bitcoin for day to day transactions (is the bitcoin address valid? How to add a comment?) and, in its current form, Bitcoin has no chance to become mainstream.
It is a given that an electronic money like bitcoin will become mainstream in a not so distant future. I foresee three possible scenarios :
1. Bitcoin becomes the backend of an easier system and most of the people don't see bitcoins and use them without knowing it. Nevertheless, bitcoins are very valuable. That's what happened with Linux where most people using Linux are, in fact, using a layer above it (Android). That's probably where Ripple may become useful. [1]
2. Bitcoin itself becomes easiers and some services above make it even more easy. That's what happened with Git and Github. Git itself became easier and Github made it usable by nearly anyone.
3. A new solution appears that completely replace Bitcoin. Like social networks are killing RSS feeds. Bitcoin would become like Napster: an historical forerunner without any remaining value.
If you believe that 1. or 2. are the most probable future, hold your bitcoins. Don't be scared because speculators are moving the price. Just hold and sell your bitcoins when you need money.
But don't forget that 3. is also a possible scenario. So don't invest into bitcoin what you could afford to lose entirely.
[1] http://ploum.net/post/ripple-making-bitcoin-easier-or-obsolete
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